February 24, 2011
Volume 4, No. 2

In this Issue:

Xtra Education

Consultant Corner

SOS Accounting Answers

Free SOS Educational Webcast - The Taxman Cometh: Commonly Asked Participant Tax Questions & How to Answer Them

Free SOS Marketing Webcast - Proxy 911: Help is on the Way!

SOS Product Spotlight - Participant Consent Website

SOS Across Our Desk

SOS Xposé

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Watch us on

SOS Xtranormal Participant 6039 Education Videos:

SOS Employment Opportunities
From the SOS Library:

Stock Plan Vendor Analysis and Evaluation

A recorded demo of "Email Xpress", the SOS automated solution for emailing participant stock plan confirmations and statements, is now available:

Email Xpress Demo

From the SOS Webcast Archive -

Performance Plan-tastic: Handling the Perks and Pitfalls of Performance

Our Services:


Equity Compensation Projects/Consulting

SOS-TEAM Outsourcing

Contact Us:




Check out the new SOS Website
Ideas or Questions:

Do you have ideas for our next newsletter or webcast? Topics you're dying to see addressed but haven't yet? Please send us an e-mail with your ideas to: xtra@sos-team.com.

Xtra Education

"Knowledge has to be improved, challenged, and increased constantly, or it vanishes." - Peter Drucker

Scanning the conference agenda for ShareComp 2011, one is reminded how quickly things change, and that the equity compensation learning curve is always steep. It seems like every year at SOS, we are faced with a plethora of projects to help our clients address the next "big challenge". In years past that included the adoption of FAS123R, option backdating/409A fixes, option exchange programs, and, this year, 6039. During that time, hundreds (thousands?) of other minor changes have affected the way our clients manage their equity plans, while the popularity of various types of equity comp has fluctuated as well.

All this is to say that the hackneyed phrase "it has never been more important..." does not apply here. Going back many years, and continuing on to the foreseeable future, it will remain critical to the success and compliance of your company's stock plans that you stay extraordinarily informed about the changes that are affecting our industry.

At SOS, we are excited to be at the center of the ongoing effort to build knowledge in our industry. Our monthly educational webcasts have never been more popular, SOS Xtra enters its fourth year and is going strong, our equity compensation library is growing, and our consultants continue to be brought in to assist our clients in new and exciting areas.

In this issue of Xtra, there are two new columns, "SOS Accounting Answers", and "Consultant Corner", that look to extend this knowledge-building effort. These articles are meant to provide a nuts and bolts look at how we have helped our clients face very specific challenges for the accounting or management of their plans. We've seen a lot over the years, and these columns represent one of the best ways for us to provide you with "news you can use". In closing, we hope that you will send us your feedback and ideas for not only this newsletter, but also for all the areas and ways you think we can help educate our community.

Barrett Scott, Principal,
on behalf of

The SOS Team

Need an easy way to stay up-to-date on industry news? Follow us on Twitter or become a fan on Facebook.

Consultant Corner

SOS People Solutions consultants not only provide companies with stock administration coverage for medical leaves, high volume periods, and departmental vacancies, they can also be counted on to apply their extensive expertise to the thorniest challenges our clients are facing.

In this new feature, SOS consultants will give our Xtra readers insight on the techniques and approaches they are using to help clients address their more complex equity compensation challenges.

Client Challenge:

One of my clients recently wanted to add a retirement provision to their stock options and restricted stock units (RSU) which would accelerate the vesting of both options and RSUs upon retirement. The criteria for retirement eligibility was a combination of years of service and age.

The challenging issue for restricted stock units was that under Section 31.3121(v) (2)-1 of the Treasury Regulations, FICA and FUTA taxes must be collected when the RSU is no longer subject to substantial risk of forfeiture (at the time the participant becomes retirement eligible) and not when the RSU is released/delivered. Options did not pose a challenge in this regard since all taxes are due when the employee chooses to exercise, but there are special accounting needs.

Our Solution:

  1. Set up cross-functional team that included representatives from HR, Accounting, and Payroll. All three departments needed to work together to develop an efficient and functional process.
  2. Make sure you consider international tax consequences and legal requirements before rolling out the programs in a specific country. Each country may have different tax rules regarding retirement eligibility.
  3. Identify all retirement-eligible employees and their eligibility dates.
  4. Tag employees in your stock plan database so they can be easily identified. We used a user-defined field on the participant level for this purpose.
  5. Tag all grants that are retirement eligible. (Accounting needs to be able to separate these grants for expensing purposes.)
  6. For RSUs, we used the deferral function in the stock plan system to separate the vest date from the release/distribution date. This allowed us to calculate payroll taxes due at the time of retirement eligibility.
  7. For options, our stock plan system allowed the expense schedule to differ from vesting schedule. Under the accounting rules, expense must be recognized over the period in which the grant earned (substantial risk of forfeiture no longer applies).
  8. Set up a process to send vesting data to payroll. We used the Rule of Administrative Convenience¹ to collect the payroll taxes at the end of the calendar year instead of at the time of retirement eligibility. We believe that most participants will reach their Social Security limit before this date and will only be subject Medicare taxes.
  9. Establish a process with HR when an employee retires. HR will need to inform the stock plan group when an employee retires so the equiyt database can be updated.
  10. Establish a process in the stock plan group for acceleration of grants.
  11. Establish an audit process to ensure acceleration is correct.
  12. Establish an audit process to ensure all grants and participants are tagged correctly on an ongoing basis.
¹Rule of Administrative Convenience allows FICA to be collected at any date (after vesting) during the calendar year. IRC Section 31.3121(v)(2)-1(e)(5))

Michael Hom, CEP
Stock & Option Solutions


Michael Hom is a Senior Equity Consultant for Stock & Option Solutions. He has been in the equity compensation business for over 10 years. Mike has worked with over 50 SOS clients assisting them with the management of their stock plans as well as on a number of consulting projects, including mergers and acquisitions, expensing, stock splits, and developing and implementing equity compensation tools to help manage their most complex equity compensation requirements. Mike has been a member on both the SVC NASPP Chapter Executive and Program Committees.

SOS Accounting Answers

Accounting for equity compensation has been the number one topic for articles in SOS Xtra. Because the response to these articles has been so great, we are giving this subject its own section, SOS Accounting Answers, each month. If specific equity accounting issues are keeping you up at night, email us...we'd love to cover it in a future issue of Xtra.

This month, we tackle:

Oops! Accounting for ESPPs - Share True Ups?

One of the most common mistakes I see in accounting for Section 423-qualified Employee Stock Purchase Plans (ESPPs) is that when the purchase occurs, the expense is trued up to the shares that were actually purchased. Wrong! (At least in many cases.)

A few examples demonstrating why this is not always the right thing to do:

  1. If a participant voluntarily withdraws from the plan during the offering period, but is still employed at the time of purchase, you should NOT reduce the amount of expense booked for the reduction in shares actually purchased. This is analogous to the participant choosing NOT to exercise their stock option, even though it vested. The "requisite service period" has been completed, so you "get" to keep the expense. Lucky you. (ASC Topic 718-50-35-2)
  2. Likewise, if a participant reduces their enrollment contribution, but is still employed at the purchase, you should NOT reduce the amount of expense booked for the reduction in shares actually purchased. This is analogous to the participant choosing to exercise only a portion of their stock option, even though it vested. Again, the "requisite service period" has been completed, so the expense is retained. (ASC Topic 718-50-35-2)
  3. If the number of shares purchased increases because market value drops during the offering period (and there is no limit in the plan restricting the participant from purchasing more shares). The possibility of the purchase of more shares is already captured in the fair value calculated on the grant date (aka enrollment date). One component of the fair value of these types of plans is a "put option" that reflects the additional value received by the participant from this feature. So again, no true up is required. (ASC Topic 718-50-55-24)
So when DO you true up expense to the shares actually purchased? Generally only in two cases:
  1. If the participant terminates and thereby withdraws from the plan this is akin to forfeiting an option and any expense recognized on forfeited shares can be reversed because the requisite service period was not completed (ASC Topic 718-50-35-2) OR
  2. If the number of shares purchased increases due to a salary increase, bonus, etc. (and these increases do not trigger modification accounting unlike many others) (ASC Topic 718-50-35-1)

I recently worked with a client that had been truing up expense to the exact number of shares purchased for many years. The issue was raised and the client made a change to their process, only truing up for the cases mentioned above. When the auditor arrived that quarter, he asked why the process had changed. We explained and cited the appropriate literature. He was surprised and concerned that "now what are we going to reconcile to?" Apparently some may be more concerned with having a number to easily tie out to than following the guidance correctly.

Elizabeth Dodge, CEP
Stock & Option Solutions


Elizabeth is the Vice President of Product Management for Stock & Option Solutions, Inc. (SOS). Her responsibilities include monitoring new developments in the equity compensation arena, performing market research, speaking at industry events and helping to define the product roadmap for SOS.

Elizabeth regularly speaks on industry trends and product development at client and industry events including NASPP and NCEO webcasts, GEO and NASPP Chapter meetings, and the NASPP Annual Conference. She was also selected to speak at the West Coast FASB Roundtable on FAS 123(R) and has recently co-authored the chapter on accounting for equity compensation in The Stock Options Book, 11th edition, by Alisa Baker. She became a Certified Equity Professional in 1999 and continues to volunteer for the Certified Equity Professional Institute. She also volunteers for the Silicon Valley Chapter of the NASPP and serves on the Board of Directors of the NCEO.

Free SOS Educational Webcast

The Taxman Cometh: Commonly Asked Participant Tax Questions & How to Answer Them

March 24th, 2011

Click here to register.

Please join us for our next educational webcast on March 24th at 11am Pacific Time, 2pm Eastern Time.


Do you struggle every tax season with all the participant questions that come flooding in? Does your legal counsel give you grief or restrict your ability to really help your participants for fear of "offering tax advice"?

How do you answer those commonly asked participant questions while walking the fine line between assistance and advice?

Our expert panel will help you find the right approach and help you effectively answer questions such as:

  • What is this form 3921/3922 and what do I do with it?
  • Why does the broker 1099 have the gross amount of my sale? Wasn't it already recorded on my W-2?
  • How do I fill out my schedule D for the sales of my RSU shares?
  • What is the cost basis for my ESPP shares?
  • What is a qualifying/disqualifying disposition?
  • I sold my RSU shares for less than the value at vest. Why is the higher amount (spread at vest, not sale) recorded on my W-2?
  • What is AMT and why do I care?

Nothing is more frustrating than knowing the answer, but not providing it to the participant. With our tips for communication, you'll have more resources to keep participant customer satisfaction high, while still appeasing the lawyers. Come with us as we journey to find that middle ground!

Have frequently asked participant tax questions you're dying to have help answering? Submit them in advance at xtra@sos-team.com


(One hour of Certified Equity Professional continuing education credit is available for attending. See the CEPI website for more information on CEP continuing education requirements.)

Free SOS Marketing Webcast

Proxy 911: Help is on the Way!

March 1st, 2011

Click here to register.

Please join us for our next marketing webcast on March 1st at 11am Pacific Time, 2pm Eastern Time.


The objective of this webinar is to review areas of proxy preparation that are mistake-prone or time killers and demonstrate how Stock & Option Solutions' best practices and creative solutions can help solve these issues.

We'll cover the top 10 areas where SOS's expertise creates value add for clients during proxy season, including:

  • Preparation and review of proxy tables
  • Review/practical guidance for equity related proposals
  • Proxy distribution, including e-delivery
  • Audit and reconciliation

(As this is a webcast dealing with SOS products and services, no continuing education credit is available for attending.)

SOS Archive

In case you missed them, here are links to the January Issue of SOS Xtra and our February educational webcast:

January 2011 Xtra Newsletter

And don't forget, you can always access our complete archives, with links to every article, from our SOS Xtra Newsletter web page.

Stupid Stock Plan Tricks: Saving Your Mind, Your Time, and Reducing Your Company's Risk

SOS Product Spotlight: SOS Participant Consent Website

Now that you have just completed sending your 3921 and/or 3922 statements for Section 6039, it is time to start to think about how you might want to change your delivery for next year. One such change could be to deliver the statements electronically, but first you must receive consent from your employee base to send them their statement electronically.

The SOS Consent website can help facilitate the consent collection.

SOS Consent Website Features:

  • Electronic tracking of your employees consent
  • Ability to download employee reports and their consent status
  • E-mail confirmation to your employees on their election status
  • Administrative reports to see consent election statistics
  • Ability to send reminder emails
  • Administrative function to be able to upload additional employees or change employee status, as needed

SOS Consent Website Benefits:

Save Time: With the ability and consent to send the forms via email, coupled with SOS 6039 Xpress, all these statements can be sent with only a few steps.
Save Money: No need to purchase envelopes, postage, stuffing, etc.

*If you are using the Notice and Access delivery method for your proxy materials, the SOS consent website is great for collecting employee consent for this type of delivery. Don't forget to come to our Proxy 911: Help is on the Way! webcast on March 1st to learn more.

For more information, please feel free to contact us at xtra@sos-team.com

SOS Across Our Desk: Equity Compensation in the News...

From The NASPP Blog: Time to file for an extension...6039 decisions have been made.

SEC Adopts Final Rules on Say on Pay...Equilar took an early look at how companies are addressing the new say-on-pay regs, and highlight their findings here...On Friday, Corp Fin posted 7 new Compliance and Disclosure Interpretations - six related to say-on-pay and one related to golden parachutes.

Cost Basis
IRS Delays PART of the cost basis reporting requirements.

San Francisco wants to tax stock options.

Six employee stock plan mistakes to avoid.

Remedy and Compensia Merge Twitter or become a fan on Facebook.

SOS Xposé

...tender tidbits about people and players in our industry...

Tied the Knot...Craig Tanner of Reed Smith was married to Annette Calderon just in time for Valentine's Day making their family of seven "official". Congratulations!...

New Arrivals...On February 10th, Kevin Osterman of Edwards Lifesciences had a new baby boy, Sean Patrick...Jeremy Wright of Two Step Software and his wife Lisa had a baby boy, Austin Turner Wright, on January 15th. (Picture here) Austin weighed 7lbs, 15oz, and was 20 inches at birth...Congratulations!

Coming Soon...Liz Eden of NetApp is going to be having a baby in April...Brian Um of E*Trade is expecting a second child later this year. Congratulations to Liz and Brian!

Industry News...Not only did the NASPP make their big annual announcement about the 19th Annual NASPP Conference, but they are also now on Twitter (http://twitter.com/NASPP) and Facebook (http://www.facebook.com/NASPP).

CEPs in the House...When Viji Karunkaran earned her CEP in November, it also was a milestone for the Product Management team at Solium Transcentive. All members are now CEPs. Congratulations to Viji, and everyone on the team!

We'd love to hear from you for our next newsletter. If you or someone you know is taking a new job, expecting a child, getting married, releasing a new product, or has just done something that might be interesting to the good readers of this publication, please drop us a line: xtra@sos-team.com

Happy St. Patrick's Day!
Savannah is Coming: July 4th, 2011
Did you miss an issue of Xtra? View our complete newsletter archive from our new website here
Miss a webcast? You can find links to recordings, as well as the materials, on our Webcast page

Information provided in this newsletter is designed for educational and entertainment purposes only and is not provided as professional service or advice. Moreover, this newsletter should not be relied on as legal, accounting, auditing, or tax advice. Anyone reading this newsletter should not act upon this information without seeking professional counsel and/or input from their advisors. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.
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